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Group Led by Goldman Sachs
Agrees to Buy National Golf

By

Rhonda L. Rundle and

J. Lynn LunsfordStaff Reporters of The Wall Street Journal

Updated Sept. 17, 2002 12:01 a.m. ET

The board of
National Golf Properties Inc.,
the nation's largest golf-course owner, approved its sale to an investment group of funds run by
Goldman Sachs Group Inc.
GS 2.08%
and Starwood Capital Group. The transaction includes the purchase of a closely held firm, American Golf, that operates nearly all of publicly traded National Golf's courses and is controlled by the founder of both companies.

Under the agreement, National Golf shareholders and common-unit holders will receive $12 for each security held, giving the transaction a value of $246 million. The buyers say the deal also entails repayment of $400 million of debt of National Golf and $98 million of debt of American Golf. In addition, the buyers say they plan to spend $240 million for capital improvements and transaction costs. The deal includes $110 million of preferred units owned by an unidentified institutional holder, according to the buyers.

The deal, which is expected to close early next year, would take National Golf private. National Golf owns 116 golf courses in 22 states. American Golf employs over 17,000 people and operates more than 250 private country clubs, destination golf resorts, daily fee and municipal golf courses in the U.S., United Kingdom, Australia and Japan.

The $12-a-share offer "looks like a relatively fair deal," says Steve Sakwa, an analyst at Merrill Lynch. National Golf's shares hit a 52-week high of $17.40 in September 2001, and dropped in February to as low as $4.30. Monday, after the deal was announced, the shares rose 99 cents to $11.69 at 4 p.m. in New York Stock Exchange composite trading.

The agreement appears to resolve the financial crises of both National Golf and its tenant, American Golf, which have been struggling over the past year. The general economic decline, along with overbuilding of new courses, has hurt the golf business. National Golf disclosed in November that American Golf wasn't able to make timely rent payments and in February suspended its shareholder dividends. In April, National Golf's independent auditor, PricewaterhouseCoopers LLP, said it had doubts about the public company's ability to continue as a going concern.

The sale accord with Goldman Sachs and Starwood Capital supersedes a merger between National Golf and American Golf announced in late March. The complicated merger raised questions among many shareholders because of the ownership links between the two companies, which were both founded by David Price and are based in Santa Monica, Calif. American Golf is controlled by Mr. Price and his former wife, Dallas. The Prices also own about 40% of National Golf's stock.

Starwood Capital is a private investment group that operates separately from the White Plains, N.Y., hotel company
Starwood Hotels & Resorts Worldwide Inc.
Barry Sternlicht, the hotel company's chairman and chief executive, is a founder of Starwood Capital.